Another Step Higher?

According to plan, the metals are extending higher this morning. While this is fun to see, The Big Show begins tomorrow.

But tomorrow is tomorrow and today is today. Events this morning have been influenced by a couple of headlines, both summarized in these articles from ZH. First, a report from the Congressional Budget Office that the fiscal year 2012 budget deficit has reached $1.165T...and there are still two months to go!! http://www.zerohedge.com/news/us-august-budget-deficit-soars-192-billion-117-trillion-fiscal-2012. Again, I ask the question, from where is this money coming? The U.S. government, from November of last year through last month, has spent 1,165,000,000,000 more dollars than it brought in. Did, as politicians like to suggest, the U.S. borrow it fwom da wascawwy Chinese? Uh...nope. In fact, new Chinese purchases of U.S. treasury debt have nearly stopped. The slack has been picked up by the Japanese but, net-net, the "contribution" from these two countries is flat. http://www.zerohedge.com/news/presenting-shocking-source-us-treasury-demand-past-year

As I type, I've got $1737 and $33.80. Not exactly a Happy Tuesday...yet...but still far better than the levels seen yesterday afternoon during another inglorious, Globex pilferage. If the metals don't break higher soon and, in the process, trip some more buy-stops, we'll likely remain in the current range as we await the events of tomorrow. As stated yesterday, beware anyone who claims they can accurately predict the judgments of the German Constitutional Court AND the global market reaction. This is a double wildcard event and we are all simply along for the ride. (Be sure you keep your hands and feet in the car at all times. Riders with high blood pressure or pre-existing back pain should exit the ride now, along with all expectant mothers.)

Next, I need to pass along a big group of thank yous. If you've ever clicked the "Feed The Turd" button, you've seen that there is a snail mail option available. Our developer, Ron Shimshock, graciously collects items that are sent in and then, every few months, bundles everything together and ships it off to me. All honoraria is greatly appreciated and my family and I particularly enjoy the personal notes and cards. Thanks to all listed below for making the effort. Again, it is very, very much appreciated!!

Lastly, today is a very important and very sad anniversary and I hereby make a simple request. You may think you know what happened that day. You may think you know of who was responsible and why things transpired the way they did. However, the only thing we know with certainty is that nearly 3,000 people died that day. Please honor the loss of life by taking time today to reflect upon your personal blessings and pray that a similar tragedy is never visited upon you or your family.

Big Banks Hide Risk Transforming Collateral for Traders

JPMorgan Chase & Co. (JPM) and Bank of America Corp. are helping clients find an extra $2.6 trillion to back derivatives trades amid signs that a shortage of quality collateral will erode efforts to safeguard the financial system.

Starting next year, new rules designed to prevent another meltdown will force traders to post U.S. Treasury bonds or other top-rated holdings to guarantee more of their bets. The change takes effect as the $10.8 trillion market for Treasuries is already stretched thin by banks rebuilding balance sheets and investors seeking safety, leaving fewer bonds available to backstop the $648 trillion derivatives market.

The solution: At least seven banks plan to let customers swap lower-rated securities that don’t meet standards in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed “collateral transformation.” That’s raising concerns among investors, bank executives and academics that measures intended to avert risk are hiding it instead.

“The dealers look after their own interests, and they won’t necessarily look after the systemic risks that are associated with this.........."

I highly recommend Gene Arensberg's work over at GotGoldReport if you'd like to understand the COT better. I can tell you, the COT structure is absolutely usual for what happened during the last 3 weeks. Speculators and hedgefunds increased their net longs while the commercials (the banks) provide them with short contracts to buy. Then we get a smash/raid where the commercials sell short even more, then when the price is down and everyone is demoralized and nobody dares issue a buy order, they buy back their shorts, mostly in the green. That's how they have consistently ripped off the specs and funds for as long as Gene has observed the data, which is 10+ years.

It's also my main key for buying and selling: when hedgefunds and speculators longs have massed along with the corresponding commercial/cartel net shorts (note for Pining: this does not have to mean higher open interest as we are talking net positions here, meaning you subtract shorts from longs), you sell, because you know these commercials will be looking to get rid of their shorts at a lower price. When the raid is done and it looks like they have covered, when commercial net shorts are low, you buy.

That's also why I recently sold a good part of my paper silver - from 27$ silver to 32,5$ on last reporting day, Tuesday last week, we've had a runup in cartel net shorts from ~10000 to 45000. This reporting day with silver around 33,5-34$ we can expect we are already above 50000. Perhaps even 55000. 10000 is, speaking from 10+ years of observation, MAJOR buying territory. 50000 is more in selling territory, as cartel net shorts never exceeded 70-80k. Around 50k net shorts they will often look to buy back those shorts lower.

Note: the only point in time when this method failed was during the 20-50$ runup from late 2010 to Mayday massacre 2011. August 2010 with silver around 20$ the commercials were massively net short, close to 70k. Then QE was announced and they actually short covered into a price rise, with commercial net shorts dropping on a price rise. This obviously happened with their fore-knowledge, as they basically control these markets short- and medium-term. They have more than demonstrated that they can do whatever they want to the price of silver (remember May and September 2011?), and they should be able to since total open interest in silver amounts to a puny 20bn$ - compare that to the trillion $ stock and bond markets which they also manage successfully - the silver market is NOTHING for them. Just sometimes they have to let prices run to eliminate the possibility of divergence of price in the paper and the physical market. And in that particular case they obviously didn't mind spending a bn $ or so in losses on their shorts to send false signals to the futures market. But usually, they actually make money by manipulating the silver price lower, by shorting into a rising market - gotta admire that. As Andrew Maquire stated in his first KWN interview: "these guys brag about how they rig the metals markets lower, and make money off of it".

I wonder how much longer this charade of Japan mopping up US Treasury emissions can continue. Perhaps they've been co-opted by Benny and Timmy and the whole thing is a shell game? Either way there is no trade surplus left to recycle so this arrangement is precarious. Once it runs its course we'll get QE.

Given the currency moves today, i would be expecting new highs for this move in Au and Ag.

Todays highs are currently lower than yesterday. This is concerning me.

I'm not getting a positive constructive feeling at all.

We have had a nice little consolidation at the highs. I am getting the lower high and bigger consolidation vibe. I really hope that I am wrong! I really hope that the action is to entice a few Armstrong followers into the short side before they blast to new highs after London has gone home and there is just the crimex participants left............

I added some SLV puts yesterday, and this morning sold some SLV calls. I am keeping my options LITE - I don't know what will happen, and the solution is either have no paper 'options' or a balance of puts and calls but keep it LITE.

CFTC Approves Swap Definition Triggering Dodd-Frank Rules

A definition of swaps required by the Dodd-Frank Act and approved by U.S. regulators will bring government scrutiny to a $648 trillion global market that has been largely unchecked since it emerged three decades ago.

The U.S. Commodity Futures Trading Commission and Securities Exchange Commission, the agencies charged with overhauling financial regulation following the 2008 credit crisis, laid out for the first time when interest-rate, credit, commodity and other derivatives will be considered swaps. The designation approved yesterday activates rules to increase collateral requirements and bolster public trading of the products by companies such as JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Cargill Inc.

“This is significant to the American public because now we will bring transparency to these markets,” CFTC Chairman Gary Gensler said yesterday in a Bloomberg Television interview after the commission met in Washington. “We will have dealers registering. We will lower the risk to the American public. Congress said further define a term. We further defined it. Two months from now a lot of Dodd-Frank comes into being.”

The swap definition will trigger almost 20 Dodd-Frank measures for reporting, clearing, trading and record-keeping that may take effect as early as September. The CFTC voted 4-1 to complete the roughly 600-page document after the SEC voted unanimously in a private process on July 6.

/end quote

While your story has disappeared this previous story would appear to indicate that today may be the day. However, there was another story a while ago about some of these provisions being pushed back until January 1, 2013. Guess we will find out soon.

Where is this money coming? It is coming because for as long as their is the perception by the herds of sheeple in the western world that America has the most powerful military might and machine in the world. It is probable that the tptb have not moved against you know who, as their is a high probability that the 5th gen ground to air defense systems in place will turn the skys into a shooting gallery which would signal the end of the dollar and a turn over in world game of king of the hill. keep stacking, just as uncle goob is prepping and stacking his executive orders

Washington, DC — Today, Commodity Futures Trading Commission (CFTC) staff is responding to questions from market participants and other interested parties on the timing of when entities will be required to register as swap dealers. The CFTC is issuing a Frequently Asked Questions document to help market participants better understand the rules, what is required and by when.

In sum, the swap dealer registration regulations go into effect on October 12, and entities that have more than the de minimis level of dealing (swaps entered into after Oct 12) must register by no later than two months after the end of the month in which they surpass the de minimis level. By way of example, if an entity reaches $8 billion in swap dealing the day after October 12, then the entity would have to register within two months after the end of October, or by December 31.

So are we looking at the CFTC finally establishing what a "SWAP" is and who has to register and be regulated....Is this perhaps why JPM has not increased its Short position this month? Could we be looking at the Silver Market about to surge to fair value? Is this what the likes of GATA and TURD's insiders (Urgh..sounds awefull) have been talking about?

Lets say we get overt"QE" on Thursday. That should be the wish of morons who have not looked at the increase in the Feds balance sheet. Well, what happens if we don't get it, which BTW is the most likely outcome? Do we slice through the 30's back to the infamous 27.50? You see, this is the danger of talking about "QE" too much. QE is an ongoing game with the FED. Just look at their balance sheet that's been growing exponentially. The banks now know this and will use this against us. We silver "freaks" have literally dug each of us a hole because of putting QE up on the totem pole of the main reason why silver should go up in the short term. If I were a cartel member, I would be getting excited for Thursday... since they know already what's going to happen. With that said, they would sure be nervous if they were coming out with "QE".

On another note, my condolences of the 3000 people who died in the twin towers and the million plus Iraqis killed.

DISCLAIMER: The charts and analysis provided here are not recommended for trading purposes. Trade at your own risk. The Turd provides knowledge not direction. Turd holds no liability for your trades and decisions but he's happy to take credit when credit is due, particularly through the "donate" button. Read more...